Do you have any retirement savings? If yes, are you increasing your contributions over time or maintaining your account balance? The biggest error that most people make when it comes to their retirement contributions is not regularly increasing the amount they contribute.
According to Lisa A. Cummings, Esq., an attorney and executive vice president at Cummings & Cummings Law, “the biggest retirement mistakes most workers make is keeping contribution rates flat year after year.” As a compensation and benefits specialist, Cummings has seen the figures for thousands of people’s plans.
Nearly half of households, according to a 2024 Federal Reserve survey, have less than $65,000 saved for retirement, she added. “At a 3% employee contribution, a person making $70,000 would only save $2,100 a year, which is insufficient to replace income in retirement,” she continued.
Examine the Employer Matching Program
According to Jared Hubbard, fintech product manager at Plynk, a free investing platform, maximizing retirement contributions may position a person for financial success in retirement.
“You can maximize your savings through retirement accounts like IRAs and 401(k)s as you put money aside,” Hubbard said, adding that this is particularly true if your employer matches contributions. “An additional catch-up contribution to an IRA is also available to individuals 50 and older.”
“Employer matching contributions make this decision even more compelling,” Cummings stated. Failing to meet the employer match threshold, which is 50% of the first 6% of earnings, is equivalent to refusing free money.
An employee will never be able to get the matched money back if they are not already at the maximum employer match level.
The goal of matching contributions is to incentivize more contributions from your personal funds. “Even minor increases in the employee’s contribution amount continue to compound powerfully once the employee surpasses the maximum employer match,” Cummings continued.
Examine the Risk vs. Reward again
Hubbard noted that reassessing their investment risk tolerance is one thing retirees can overlook.
“A balanced portfolio might be a strategy to consider as you work toward your retirement goals,” Hubbard stated. Think about making investments in assets that have the potential to generate a consistent flow of income. Bonds, money market funds, and stocks that generate dividends may fall under this category. When in doubt, research it!
How to Increase Your Input
Set up automatic increases in a 403(b) or 401(k) plan as a straightforward method of correcting a flat-rate contribution.
“You can schedule a 1% automated increase every year with many plans,” Cummings added. In the first year, that adds only $58 a month to that same $70,000 salary, but by the fourth year, the amount contributed has increased to over $7,000 annually. The real effect on take-home income is less than most individuals would anticipate because contributions are pre-taxed.